Saturday, February 20, 2016

So, Why Are Analysts Still Predicting Oil Will Average $47 This Year?

From Asia Stocks to Watch:

Why Are Analysts Still Talking About $47 Oil?

Oil prices touched a decade low of $26 a barrel in January and have
averaged in the low $30′s so far this year. But the median forecast of
34 analysts polled by Bloomberg still sees oil to average at $47 a
barrel in 2016. Bank of America Merrill Lynch, for instance, published a note dated February 18 arguing oil will hit $47 by June.

In a world of oversupply, the marginal producer should be the best
guide to a price floor. The average marginal costs in the U.S. range
from $7 to $17 a barrel, against a global weighted average of $9 a
barrel, estimates Deutsche Bank.

So if $9 oil were a trough, why are oil analysts loathe to lower their oil forecasts?
Analysts are worried they may be caught by a crazy Saudi Arabia move that will propel a V-shaped rebound, opines Deutsche Bank:

Hence if we were to target $9 a barrel as a trough, then a
host of additional considerations must come in. Not least of these is
the possibility that planned capex might be ratcheted so low as to
engender a greater likelihood of a V-shaped recovery in prices over a
three- to five-year horizon. In addition, this level of pricing must
surely raise the probability of OPEC action, even taking into account
very steadfast rhetoric from Saudi Arabia that insists upon non-OPEC
involvement in any coordinated supply reduction. Finally, a severe
degree of distress suffered by upstream oil companies, particularly
high-yield issuers in the US, may negatively affect the industry’s
ability to respond to above-breakeven prices, thus raising the
possibility of overshooting the equilibrium to the upside over a
five-year horizon. The lower prices go, the greater the likelihood of a
sharp and persistent rebound.

Not us. We're not concerned Saudi Arabia will unilaterally cut production and create a V-bottom and destroy our shorts..
That would be crazy talk.

We're concerned the Saudis have procured nukes from Pakistan and might think of using them against the Russians in Syria.

That would screw up a short position fast.

However, Pakistan says they would never do that, despite the Saudis having funded A.Q. Khan, the Father of Pakistan's Nuclear Program and in spite of the fact they have already shared nuke tech with Iran, Libya and North Korea.